Glossary

ACTION PLAN A document that addresses strategic objectives and the steps required to achieve them.

ACTION STEPS The “who,” “what,” and “when” involved in carrying out a strategic initiative and achieving assigned goals. The sum of these action steps should complete the job.

ALIGNMENT For a business, a condition in which organizational structures, support systems, processes, human skills, resources, and incentives support strategic goals.

BALANCED SCORECARD A performance measurement system that includes financial measures and three sets of operational measures that relate directly to customer satisfaction, internal processes, and the company’s ability to learn and improve—the activities that drive future financial performances.

BENCHMARKING An objective method for rating one’s own activities against similar activities performed by organizations recognized for best practice. In addition to providing a method for self-evaluation, benchmarking aims to identify opportunities for process improvement.

BUSINESS MODEL A conceptual description of an enterprise’s revenue sources, cost drivers, investment size, and success factors and how they work together.

COMPETITIVE ADVANTAGE A function of strategy that puts a firm in a better position than rivals to create economic value for customers.

CONTINGENCY PLAN A course of action prepared in advance of a potential problem; it answers this question: “If X happens, how can we respond in a way that will neutralize or minimize the damage?”

CORE COMPETENCY A company’s expertise or skills in key areas that directly produce superior performance.

CULTURE A company’s values, traditions, and operating style.

DIFFERENTIATION STRATEGY A strategy in which a company deliberately sets its product or service apart from those of rivals in a qualitative way that customers value.

EXPERIENCE CURVE A concept that holds that the cost of doing a repetitive task decreases by some percentage each time the cumulative volume of production doubles.

FOCUS STRATEGY A business strategy built on the goal of serving a targeted market or set of customers extremely well.

HURDLE RATE The minimum rate of return expected from new projects that require substantial capital investments. It is usually calculated as the enterprise’s cost of capital plus some expectation of profit.

IMPLEMENTATION The concrete measures that turn strategic intent into reality.

INTERLOCK Points of cross-functional collaboration in pursuit of a goal. These might take the form of a task force team, cooperative individuals in departments who supply resources or advice, and so forth.

JUDO STRATEGY As conceptualized by authors David Yoffie and Mary Kwak, strategic moves based on principles of movement, balance, and leverage.

KAIZEN A philosophy of continuous process improvement that encourages everyone, at every level, to seek out ways to incrementally improve what they are doing.

LEAD USERS Companies and individuals whose needs are far ahead of typical users.

MARKET SEGMENTATION A technique for dividing a large heterogeneous market of customers into smaller segments with homogeneous features.

NETWORK EFFECT A phenomenon is which the value of a product increases as more products are sold and the network of users increases.

OPERATING MARGIN A financial ratio used by many analysts to gauge the profitability of a company’s operating activities. It is calculated as earnings before interest and taxes (EBIT) divided by net sales.

OPPORTUNITIES In SWOT analysis, the trends, forces, events, and ideas that a company or unit can capitalize on.

PRICE ELASTICITY OF DEMAND A quantitative measure of customer price sensitivity.

PROCESS REENGINEERING An improvement concept that aims for large breakthrough change—either through wholesale change or elimination of existing processes.

RETURN ON ASSETS (ROA) Relates net income to the company’s total asset base and is calculated as net income divided by total assets.

RETURN ON EQUITY (ROE) Relates net income to the amount invested by shareholders (both initially and through retained earnings). It is a measure of the productivity of the shareholders’ stake in the business and is calculated as net income divided by shareholders’ equity.

SKUNK WORKS A team of people brought together in one place to generate an innovative solution or to solve a particular problem. In some cases, skunk works are sited in remote settings to keep team members focused on their mission, to minimize interference from the rest of the organization, or to maintain secrecy.

STRATEGY A plan that will differentiate the enterprise and give it a competitive advantage over rivals.

STRENGTHS In a SWOT analysis, the capabilities that enable a company or unit to perform well—capabilities that need to be leveraged.

SUBSTITUTE Any good or service that can fill the role of another. Two goods are considered substitutes whenever an increase in the price of one results in increased purchases of the other.

SWOT ANALYSIS Analysis that investigates the strengths, weaknesses, opportunities, and threats facing a company or operating unit.

THREATS In a SWOT analysis, the possible events or forces that a company or unit must plan for or mitigate.

WEAKNESSES In a SWOT analysis, the characteristics that prohibit a company or unit from performing well and need to be addressed.

WINNER-TAKE-ALL STRATEGY Same as network effect strategy.

WORK BREAKDOWN STRUCTURE A planning tool that deconstructs a project’s goals into the many tasks and subtasks required to achieve it.